In Move to Further Stabilise Market, CBN Reviews Banks’ CRR Framework

* Naira now N1,435 on official FX window, N1,430/$ on parallel market

* Analysts lament upward review of import duty, say it’s double jeopardy for real sector operators

James Emejo in Abuja, Nume Ekeghe and Dike Onwuamaeze in Lagos

As part of efforts to stabilise the financial market, the Central Bank of Nigeria (CBN) yesterday announced a cessation of daily Cash Reserve Requirement (CRR) debits for Deposit Money Banks (DMBs).
This was just as the naira exchange rate against the United States dollar appreciated slightly yesterday, on the official Nigerian Autonomous Foreign Exchange (NAFEX) window as it closed at N1,435/$1, while on the parallel market it closed at N1,430/$1.

The official FX window gained N26.37 to close yesterday at N1,435.53 compared to the N1,461.90 recorded on Thursday. However, the exchange rate depreciated on the parallel market yesterday, after gaining the previous day, to close yesterday at N1,430/$ compared to the N1,350/$ it closed on Thursday indicating a N70 loss in one day. The official window recorded an increase in daily turnover from $156.86 million on Thursday to $440.13 million yesterday indicating a 180.67 per cent increase.

The highest spot rate recorded yesterday was N1,526/$1 while the lowest spot rate recorded was N838.96/$1.
However, the Centre for the Promotion of Private Enterprise (CPPE) yesterday, described the recent upward review of the exchange rate for the calculation of import duty from N952 to N1,357 as a double jeopardy for investors in the real sector.

The apex bank disclosed the latest CRR policy in a circular dated February 2, 2024, titled, “Cash Reserve Requirement Framework Implementation Guidelines” which was signed by CBN acting Director, Banking Supervision Department, Dr. Adetona Adedeji, and addressed to all banks.
The banks had been complaining about the previous CRR regime which they had viewed as a punitive policy as it was constraining on the amount of cash available for lending.

The central bank explained that it would be adopting an updated CRR mechanism intended to facilitate banks’ capacity for planning, monitoring, and aligning their records with the CBN.
The bank stated that the determination of the segment of deposits subject to sterilisation with the CBN as CRR would follow processes outlined in two phases.
According to the CBN, the first stage would involve the utilisation of the Incremental Approach – where the extant ratio of 32.5 per cent will be applied to increases in the banks’ weekly average adjusted deposits.

The CBN added that in the second phase, a CRR levy of 50 per cent of the lending shortfall would be enforced for banks that do not meet the minimum Loan-to-deposit ratio (LDR) as per CBN correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.
The bank said it would provide banks with details of the applied charges and their underlying computation rationale going forward.

Commenting on the new policy intervention by the apex bank on CRR, an Associate Director at Agusto Consulting, Mr. Jimi Ogbobine, said the circular was aimed at further correcting the challenges inherent in the FX market as well as regularise CRR.
In a chat with THISDAY yesterday, he noted that before now, there had been an arbitrary CRR administration which was utilised to part-fund the Ways and Means of the federal government.

Ogbobine said, “The CBN is now saying we want to return to orthodox monetary policy. So, you have bad behaviour and your bad behaviour doesn’t come with a consequence; because when you borrow very high, it will reflect in your interest rate which will go higher when you borrow anyhow. So, this new CRR framework is aimed at correcting the market.”

In order to stabilise the FX market, Ogbobine advised the CBN to take steps to ramp up dollar supply. He recommended that Nigeria’s should approach the International Monetary Fund (IMF), World Bank for support.
“We have already taken the bitter bill, which is devaluation and so let’s take the sweetener from them which is the FX. The IMF support would send confidence signal to investors that we are back to business. So, if we are able to unlock IMF funding, we would be able to attract foreign investments,” he added.
For his part, the Managing Director/Chief Business Officer, Optimus by Afrinvest, Mr. Ayodeji Ebo, also stressed the need for the country to take steps to increase dollar supply.

“A massive problem has been created in the FX market and it requires drastic measures. It might look expensive now, but if they are able to raise about $10 billion, clear the backlog and increase FX supply, and within the next six months or one year, we would begin to see foreign portfolio investors and foreign direct investments come in.

“Most of our external reserves are encumbered, so we need fresh money. Also, the security agencies must address oil theft so that we can raise our crude oil production to about 1.65 million barrels per day. That is what will show sincerity. The major steady source of FX has been crude oil sales. That is why we need to significantly reduce crude oil theft and increase supply,” Ayodeji explained.

Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE) has described the recent upward review of the exchange rate for the calculation of import duty from N952 to N1,357 as double jeopardy for investors in the real sector.
The CPPE added that this may be the last straw that would culminate to total devastation of businesses across all sectors of the Nigerian economy.
The Chief Executive Officer of CPPE, Dr. Muda Yusuf, told THISDAY yesterday that, “the drastic upward review of the exchange rate for the computation of import duty from N952 to N1357 would have a devastating effect on businesses across all sectors.  This is a whopping 42.5 per cent increase. This is like the last straw.

“It is double jeopardy for the investors across all sectors, especially those in the real sector. This action will further fuel inflation as production and operating costs get escalated.  The vulnerable segments of the population will be further impoverished as cost push inflation gets exacerbated.”
Yusuf noted that it was worrisome that the upward review was coming at a period when businesses were yet to recover from the shocks of the new round of currency devaluation resulting from the sudden unification of the exchange rate, which has driven the official exchange rate to about N1400.  
The CPPE appealed to the CBN to reverse the rate hike in the interest of the already impoverished segments of our society and the numerous businesses that are already on the verge of collapse.

Yusuf argued that the shocks, disruptions and dislocations that would follow the review would be of immense proportions for businesses to bear.
He said: “It is even worse that the rates take immediate effect. This is a policy action that is difficult to justify, especially in the context of the multidimensional headwinds that businesses are grappling with.

“The CPPE recommends that going forward the determination of the exchange rate for import duty computation should be treated as a fiscal policy matter and located within the remit of the fiscal authorities which is the finance ministry. This is necessary for proper alignment with extant fiscal policies.”
He argued that the continuous decision by the CBN to increase the customs exchange rate would worsen the already prohibitive production and operating costs for businesses in the country.

It would also inflict more pains on the citizens, erode profit margins, reduce purchasing power and put the survival of businesses at an elevated risk.
According to him, the frequent changes in rates is also creating serious issues of uncertainty for investors and making the international trade process increasingly unpredictable.

He recalled that he CBN had severally increased the rate since June 24, 2023, when it adjusted the exchange rate from N422.30/$ to N589/$. On July 6, it was re-adjusted to N770.88/$, and again on November 14, it was re-adjusted to N783.174/$, and it was reviewed to N951.941/$ in December 2023.

“Already businesses are contending with an incredibly difficult operating environment arising from severe macroeconomic headwinds. The persistent currency depreciation is making access to intermediate products very difficult for manufacturers, energy cost remains very high, purchasing power is weak, investors’ confidence is declining and consumer confidence is on the downward trend.  

“This is not a good time for the CBN to increase the exchange rate for the computation of import duty and the clearing of cargo by importers. This review will impact the cost of all imports, including raw materials for manufacturers, pharmaceutical products, machineries, energy products, petroleum products and many more,” Yusuf pointed out.

Reacting to the increase, the Public Relations Officer, Association of Nigerian Licenced Customs Agents (ANLCA), Onome Joy Monije, said this was not what Nigerians bargained for, adding that the sharp increase would definitely affect the profit margins of stakeholders in the industry.

“The increase is too sharp. We are going to reach out to the world to hear us by Monday. We are not fighting with anybody. We are going to come out enmass to let the world know what we are going through. The last increase was done in December last year and people are yet to recover from the increment. This increment is too massive from 956 to 1356. We are being pushed to the wall,” she said.
“We woke up this morning without any notifications or information on the custom portal. The increment is massive, this is bad and unacceptable. It is we the common masses that are going to suffer,” she lamented.

On his part, the National President, Council of Maritime Transport Unions and Associations (COMTUA), Adeyinka Aroyewun, stated that the maritime transport industry was greatly affecting businesses, saying the volume of import and export has reduced while the transport and logistics is on the decrease.
“It has affected the volume of cargo. It is affecting our business interms of volume and revenue generation negatively,” he added.